All over the Swedish port city of Malmö last week there were gaggles of students clutching brand-new laptops given to them on loan for the start of the school year. As schools fight over what, due to a demographic blip, is a declining number of students, the device you get has become a keen area of competition.

“I’ve just got a mini-HP, but you can pay a bit more and get a Mac or an iPad,” says Mua Stanbery, 16, who has just started at ProCivitas, the most popular of the town’s profit-making free schools.

Students arriving at the Thoren Business School have to make do with a Dell. But Pauli Gymnasium, the biggest municipal-run school, this year decided to give MacBooks to all its students to stave off private competition.

What few of the students know is that the ultimate cause of their good fortune – the competitive system of free schools Sweden pioneered in the early 1990s – is under assault.

SNS, a prominent business-funded thinktank, issued a report last Wednesday that sharply reversed its normal pro-market stance. The entry of private operators into state-funded education, it argued, had increased segregation and may not have improved educational standards at all.

“The empirical evidence showing that competition is good is not really credible, because they can’t distinguish between grade inflation and real gains,” Dr Jonas Vlachos, who wrote the report on education, told theObserver.

The report had a huge impact. It was a top story on Swedish television, and was hotly debated the next day in the newspapers. How the debate plays out will be watched carefully by education experts in the UK, where 24 free schools, built on the Swedish model, opened this year.

Peje Emilsson, the founder of Kunskapsskolan, a private school company, attacked the research, deriding it as the worst report the thinktank had produced in 20 years.

But Vlachos, an associate professor of economics at Stockholm University, is standing his ground. His argument is based on his finding that students who entered gymnasium [sixth form] from free secondary schools on average went on to get lower grades over the next three years than those who had entered with the same grade from municipal secondary schools.

Vlachos suspects that, because schools rather than external examining boards mark students, free schools are more generous than municipal schools in the grades they give. “There’s been tremendous grade inflation in Swedish schools,” he said.

This showed that Swedish students had dropped to 19th place out of 57 countries for literacy, to 24th in maths, and to 28th in science. This compared with 9th, 17th and 16th in studies done in 2000, 2003 and 2006 respectively [see footnote].

And Swedes, used to coming near the top of just about every human development index, were appalled.

Jan Björklund, the minister of education, moved to tighten central control over schools and is soon to launch a parliamentary inquiry into competition and free schools.

“Loopholes in the legislation have meant that free schools can elect not to have a library, student counselling and school nurses,” he complained. “And as they get just as much money as the municipal schools, the owners have been able to withdraw the surplus.”

For now, Swedish parents and students still support the 1990s reforms and neither Björklund, nor the opposition Social Democratic party, are considering reversing them. But a poll carried out this year by Synovate found that Swedes who want to ban companies from operating schools for profit now outnumber those that don’t.

Vlachos believes that the economic thinking underlying free schools is simply wrong. “It’s very difficult for people to make an informed choice of what’s a good school and that’s not conducive to a well-functioning market,” he said. Part of the problem is that students’ priorities aren’t always economic priorities. “There’s been an explosion of media courses and arts courses such as singing and dancing,” Vlachos said. “They’re not necessarily bad, but it’s not obvious that all these things are stuff that we want to subsidise with taxpayers’ money.”

The other problem is unintended side-effects that damage society, such as increased segregation. This issue becomes glaringly obvious if you visit the two sixth forms in Malmö’s Western Harbour, a development of IT office space and tasteful eco-housing built on the city’s redundant shipyards.

The first, ProCivitas, has some of the highest entry grades of any school in the city, and draws in some of the most ambitious teachers. There are only a few immigrant faces, teachers wear suits and the atmosphere in its bright, airy central lobby is like that of a trendy design company.

At Kunskapsgymnasiet, just five minutes’ cycle ride away, the atmosphere could hardly be more different.

Students lounge around in groups smoking and playing cards. Well over 60% are from immigrant or refugee families. Kristoffer Osterman, one teacher I spoke to, sports a hippie beard, long ginger hair, jeans and clumpy boots.

ProCivitas students have an average of 280 out of 320 points, the highest in the city, whereas at Kunskapsgymnasiet the average for social sciences is only 180, with some students getting in with just 65 points.

This has nothing to do with the schools’ managements. In Sweden, schools are only allowed to say how many places they have free. Each student gets their grades at the end of secondary school and lists the sixth forms they want to go to. The Malmö municipality fills the places in each school, both free and municipal, in order of grade. So if ProCivitas has 300 places, but 1,000 students want to attend it, then the municipality gives the places to the 300 students with the best marks. If on the other hand Kunskapsgymnasiet has 400 places and only 360 students want to go, the municipality will give them all places, even if they have rock-bottom marks.

Per Ledin, Kunskapsskolan’s managing director for Sweden, argues that it is unfair to judge his company’s 32 schools by Kunskapsgymnasiet.

“We have a surplus of capacity in Malmö, so we get people coming into our school who can’t get into other schools,” he said, adding that on average his students get 11 points higher than would be predicted by their socio-economic background.

But when I visited the Malmö school, it was hard to see how. It was so noisy that I thought it must be break time. “Students here, they don’t have to do every task if they can show that they know it,” a teacher said. “English for example, they can learn from the TV and other places.”

Much of the learning at the 32 schools in Sweden run by the company is done alone by students, using an online system, with one-on-one guidance from teachers once a week, interspersed with lectures in classes of up to 60 students.

If students prefer to play cards and chat all day, it’s up to them.

In his study, Vlachos argued that such systems were brought in as much to save costs as to improve education.

Kunskapsgymnasiet’s IT-based teaching system allows it to cut the number of teachers it employs in Malmö to 5.1 teachers per 100 students, compared to an average of 8.2 teachers per 100 students at municipal schools.

“Many municipal schools are horrendously bad,” Vlachos said. “But the difference between the free schools and the municipal schools is that the free schools actually have a profit incentive to reduce quality.”

Kunskapsskolan can point to strong evidence that it works, but according to Daniel Rosen, a Spanish teacher at a state-run sixth-form college in the city of Uppsala, some Kunskapsskolan graduates who come to him have alarming gaps in their knowledge.

“Some do have problems with handling their freedom,” admitted Osterman. “Freedom gives them less fact-based knowledge.”

Peter Connée, who runs ProCivitas, argued that segregation was an unavoidable side-effect of the system. “Fifteen years ago in Sweden, we had segregation based on where you live, now it’s based on ambition and ability.”

Osterman also doesn’t believe it’s necessarily a bad thing. “We are becoming a school for ambitious immigrants,” he said.

But as I was leaving his school, one of his students, Mohammed Mahmoud (not his real name), put it differently. “This is a school for criminals,” he declared, to laughter. “Nobody’s working in this school, because no one here has any future.” His remark is clearly intended as a joke, but it suggests how marginalised he feels.

• This article was amended on 27 September 2011 to make it clear that Mohammed Mahmoud was using a false name and to qualify his remarks. This correction was published on 18 September 2011: Swedish students have shown a significant fall in reading ability between 2000 and 2009, as reported in “Doubts grow over the success of Sweden’s free schools experiment” (News). However, the OECD studies referred to in the article, showing Swedish students dropping from 9th to 19th in world rankings, should be seen in the context of the number of nations taking part more than doubling from 31 in 2000 to 65 in 2009.

• The following letter was published in the Observer on 25 September 2011

Sweden is a truly class act

Personalised learning is key to the Kunskapsskolan model of teaching. Each student is supported to develop a strategy that meets their academic goals and takes account of their individual abilities. Different lesson formats are used depending on each student’s needs and the nature of the task at hand. Contrary to your article’s assertion, studies have shown that teachers working within the Kunskapsskolan model spend around 50% more time tutoring, instructing, lecturing and coaching students than those in other schools.

Official evaluations show Kunskapsskolan schools outperform state-owned peers and our students exceed the expected norms. Kunskapsskolan remains committed to our unique pedagogical model which has assured the success of countless children in Sweden. We look forward to adding to that success in the years to come, in Sweden as well as in our academies in the UK.

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